Every New Zealand tax resident is required pay tax on their worldwide income (including income earned in New Zealand and overseas). Residential status for tax purposes is different from New Zealand citizenship or permanent residency. Even if you are not a New Zealand resident for tax purposes, you still you must pay tax on any income you earned in New Zealand. Similarly, a tax resident of New Zealand is liable to pay income tax on their worldwide income. New Zealand tax residents must state their income from all sources, including that from overseas, in an Individual tax return (IR3). To avoid double taxation, individuals usually are allowed a tax credit for any tax paid abroad. Still, individuals must be able to produce records which show the overseas tax paid on that income.

An individual will be resident in NZ for tax purposes if:

the person has a "permanent place of abode" in NZ, irrespective of whether the person has another permanent place of abode outside NZ; or
the person is personally present in NZ for more than 183 days (in aggregate) during any period of 12 months. or
the person is personally absent from NZ in the service of the NZ Government.

“Permanent place of abode" in New Zealand is a place in which individual can (and does) live when required, with which the individual has a durable connection, and that is a current focal point of their living. Double tax agreements have been negotiated between New Zealand and many other countries (including India) to determine the taxing rights of each country. A person may be a tax resident in both New Zealand and another country. In that event, the person must satisfy his or her obligations in respect of income tax following the double tax agreement.

Temporary exemption of foreign income:

A New Zealand tax resident after 1 April 2006 qualifies for four years (48 months) temporary tax exemption on foreign-sourced income. The exemption applies to all foreign income (e.g. interest, rent, dividend) except employment income and income from the supply of services. Exchange of Information (EOI) After discussions with our various clients, we have found that it is a myth that New Zealand tax is not applicable for income otherwise considered exempt in India. As per Indian Income Tax rules, interest income of non-resident Indians (NRI) on fixed deposits and savings accounts is exempt income in India. However, this income is not exempt under the New Zealand’s Income Tax rules.

It is a misconception that if individuals are deriving foreign income in India, it will be difficult for Inland Revenue to investigate. We have seen first-hand Inland Revenue send letters to NZ taxpayers requesting them to declare their foreign sourced income from India. Inland Revenue takes its Exchange of Information (EOI) obligations under global tax conventions very seriously and has a very active and effective (EOI) policy and practice. By adopting and implementing rules for automatic exchange of financial accounts information, Inland Revenue has taken a significant step forward in combating tax evasion and avoidance. In the case of tax evasion, Inland Revenue can make tax adjustments that go back many years in certain circumstances.

Finally, we suggest that anybody who has income and assets in India or in other jurisdictions that should be declared to Inland Revenue at the earliest. It will avoid Inland Revenue taking action after receiving that information under Automatic Exchange of Information (AEOI) which could lead to unintentional non-compliance behaviour.

-Eshan Gupta from Tax Professionals

For more advice on the taxation of your investment property and other accounting and business services, please contact the expert team at Tax Professionals. First consultation is FREE. Contact the Tax Professionals team at: 09 213 7315 or online at www.taxprofessionals.co.nz

Individual tax obligations - Inland Revenue talking to Indian tax authorities